Every year, more and more UK workers quit the rat race to go self-employed.
Of course, it's not easy to strike out on your own. It does take mental strength to hand your notice to your employer and ultimately start a new chapter of your life. On the other hand, it can be seriously rewarding; the earnings ceiling rises substantially, while you get to reap the benefits of flexible working.
If you’re currently on the fence about whether to go it alone, here are some of the key issues to consider.
The tax factor
From a tax perspective, as an employee everything is done for you by your employer through payroll. In other words, you receive your monthly or weekly salary, and all the necessary taxes are deducted and paid on your behalf.
Well, those days will be over when you jump into self-employment, as you’ll be responsible for your own tax calculations. During the early days, where money can be tight, it can be easy to take every penny of your income, and not think about the tax implications until the end of the year.
You could enlist the help of accounting specialists such as 3 Wise Bears to help you along. However, as a general rule you need to be considering tax as you earn - setting aside a sensible sum, so that when the big bill does arrive, you’re able to cover it.
Taking a break
Under current employment laws, all employees are entitled to some form of paid holiday, or ‘statutory leave’. In the UK, you’re entitled to 5.6 weeks’ paid annual leave each year.
Well, here's the good news - your entitlement under your new self-employed status is unlimited. Unfortunately, the good news ends there. While that time off with your current employer is paid, when you are working for yourself you need to fund these breaks. In other words, if you're not working, you won't get paid.
Of course, if you have a team around you, your business won't grind to a halt while you’re gone. However, in the early days, let's assume this won't be the case.
Another consideration is general business administration - balancing the books, paying the office bills and filing tax returns, among other tasks.
When you work for yourself, you are responsible for everything. You might be an absolute whizz at the technical side of your business, but when you go self-employed, you’ll also be responsible for all the administrative headaches.
Perhaps surprisingly, this is sometimes forgotten about in the excitement of setting up as self-employed. It is important, though, and if you're not prepared for it, it can be a huge shock to the system as you start your new chapter.
Copyright 2019. Article was made possible by site supporter Richard Parker, 3 Wise Bears